Google has one last chance to buy Facebook

The Internet went already through several battles on its platform. The first one was a battle for the browser, which was also completed with a dramatic judicial final. Browsers in the meantime became nearly uninteresting commodity, on which now (almost) nobody earns money. The second battle focused on the search engine. Search engines are now at the peak of their career. They earn money so well that the winner of this battle Google has become a powerful global corporation. On the Internet, however, nobody does have anything certain forever. We are now ready for the next, already the third major battle: this time to fight for the platform on which it will be possible to build personalized search and personalized mass advertising. The winner of this "internet personalization layer" will be granted huge income from the modern advertising industry. Today there are only two serious rivals: Google and Facebook. If Google doesn’t buy Facebook now, it may eventually regret its decision.

The magic of advertising market

Advertising market was, is and always will be very lucrative. The need to sell is the basic need of all commercial firms from the dawn of business. Internet brings to this area a breakthrough innovation: for the first time in history it offers mass advertising aimed at individual needs and preferences of specific customers. Yes, especially the apparent contradictions in the words "mass" and "personal" is the key to huge earnings mass personalized advertisement will bring.

Two types of advertising

Personalized advertising was always available: but it required a personal work of people. The more customers we wanted to reach, the more people we had to involve in the sale: we had to hire more dealers, more salesmen, more call center operators. Advertising could therefore always be personalized, targeted to the specific needs of buyers, but couldn’t be in the same time a mass.

Also, mass advertising is available here for some time, specifically, since the invention of mass communication media - print, radio and television. It is able to reach millions to tens of millions of people in a single moment, but all of them with the exact same message. Men are then offered hairspray, ladies are offered sports car or a razor blade to shave beards. Mass advertising is relatively inexpensive, which unfortunately leads almost to its "abuse", which results in its overabundance. People are today approached by advertising from all sides. And since most of the advertisements are not relevant to them (they are not targeted), people take advertising as something annoying, something that is just a waste of their time and thus should be ignored ("ad blindness"). But this forces advertisers to try even harder – to try everything to win customer’s attention. Advertising thus became increasingly obtrusive and annoying. This is however, paradoxically, against the two "golden rules of successful sales. Perhaps these rules would not hurt to recall:

1. Try to solve customer problems;

2. Contact the customer when it is convenient for him.

In other words, the seller should always try to respect the needs of customers and context of their situation. If the customer looks at a football match right now, let’s assume he cares about the match, not about buying a new car. Conversely, if the customer is walking down the supermarket, now is the right time for commercial information. Advertising in such a situation will be perceived by the customer as a useful information and he will be keen to listen.

Era of mass personalization

Personalized online advertising is the right tool to solve this dilemma. The Internet is a two-way mass-media. It can deliver a personal message to the billions of people, but in the same time it can do it individually, with knowledge of the situation and context. And it can do so automatically, because the internet is basically an interconnection of computers on which programs communicate with target users according to pre-written rules. The role of precious personal sellers, dealers or call center operators can be taken over by these cheap computers and their programs. Internet thus offers the same level of economic efficiency as public broadcasting, but unlike public broadcasting it is able to customize the messages and provide an optimal time of delivery. For the first time in history, advertisement can be mass, inexpensive and yet individually addressed to specific potential customers. But this is exactly the combination every commercial company called for for years! In addition, personalized Internet advertising does not reach customers only on the Internet - thanks to consumer electronics devices it extends its reach to our daily life. Advertising (and not just the Internet one) will thus change from today's untargeted, flat and annoying form to a useful information respecting the person addressed and the context of his situation.

More effective sales

This offers truly exciting possibilities for both sides of the sales relationship. Seller will be offered personal contact right to those potential customers who might be interested in their product: we can then address just those car owners who are just now considering a replacement of their vehicle, only those tourists who now go around my restaurant and love the type of food I cook, just those travelers who are just looking for bed this evening near my hotel and could thus fill my unsold capacity. This new way of advertising is also advantageous for buyers. Buyer will be interested in receiving commercial information of the areas that interest them, and when it is useful to them. If I am walking down a mall, I would be happy to learn that the shop left to me offers the gaming console I have already asked for, and that if I buy it right now, I get a personal discount of 30%. Finally, people will not be bothered by advertising; on the contrary, they will look forward to it.

The need for a single platform

To build such an advertising system, we certainly need to know users; that means we have to know about them as much information as possible and we need to watch their behavior for as long as possible – and all that of course regardless of the device that the users are using. The same user should therefore register with the same username and password on his computer, on his cell phone, video console, television or an electronic book - personalization must be at the user level, not at the device. The platform must be capable of processing data from a large number of users and automatically monitor their activities (shopping behavior, topics read on the Internet, books read, movies watched, even their movement in the real world as tracked by GPS). All this information should then be automatically added to their profile and then groups of “similar" people should be calculated. The platform should also be massively used in order to compare the behavior patterns of as many people as possible. The more users the platform will have, the better it will be suited for targeted advertising.

It is therefore necessary to create a platform that will meet the following two criteria:

1. It is mass-popular

2. People spend as much time as possible using it.

Let's see, who is now closer to this “golden platform”. Facebook or Google?

The Facebook approach

Social network Facebook was founded in 2004 as a small student platform. By today it has more than 500 million active users, far beyond the academic realm. Gradually, Facebook is offering more and more services that compete with the general Internet services. The last of its major innovations is email called Facebook Messages, which the company launched on 15th November 2010. With this email, users get address @facebook.com and can send mails with attachments to anyone on the Internet. This email platform competes head-on-head with Google’s Gmail. But Facebook has also other services in competition with established Internet applications: for example, a photo album with no limit on the number of uploaded images and with the possibility to tag other users on photos (competes with Flicker and PicasaWeb) blogging tool Facebook Notes (Blogger.com competition), discussions organized by businesses, schools or other criteria (competition of Google Groups), not to mention the personal websites of users, which competes to Google Sites. Plus a large number of third party applications, the possibility to update user status, shared "wall" where users can write messages and post attachments, the "news feed" informing users about changes in profiles and activities of their friends. Facebook is just a small "Internet-in-one”. Everything is extremely well integrated, the user gets all the features easily, the system constantly advises them, which other functions they could still try. Whether you want to find friends, classmates, or attend one of the many forums, you are still in one application enjoying the same interface. Besides, nearly all of your friends are already there - Facebook is now by far the most popular social networking platform. Thanks to it all these services like search and discussions gain even greater meaning and usefulness.

This leaves Facebook with a real wealth of personal information. Facebook is well aware of the value it has in their users and tries to use the data collected from users in contextual advertising. Let us mention the Facebook Beacon project in 1997 (ended in 2009), which sent data from external websites to Facebook, ostensibly for the purpose of allowing targeted advertisements. This project is proof that Facebook knows which direction it should take.

In summary, Facebook gradually grew into a natural platform for the Internet - it's kind of a small Internet of its own, which integrates all useful functions, but which does not suffer from the complexity of the "big" internet. With some exaggeration we can even say that Facebook is the "Internet for ordinary consumers." But that is the majority of the Internet users.

How can Google compete?

But what is a competitive platform Google could stand against Facebook? Google has its applications in most areas of Facebook functionality. These applications usually existed long before Facebook and offer more functionality than Facebook. But does Google have a single product that could stand Facebook as its direct rival? I am afraid that here the answer is negative.

Google applications grew up as completely separate platforms, created by different teams, or even purchased as finished products. As a result, these applications are not integrated together - except the login where the same Google Account is used. An additional problem is that the functionality of many of these applications overlaps considerably. For example, several Google products have characteristics of social network, namely Gmail with Google Buzz, PicasaWeb, Blogger, YouTube, Google Maps with Latitude and Orkut. In all these applications you can add "friends" and see what these friends do. Unfortunately, by adding friends in these separate applications you end up with a number of different, separate sets of "friends." To tell the truth it results in a chaos, with whom we actually take up with.

Chaos in friends :-)

In fact, Google applications are very good individually. In particular, Google has an excellent e-mail system Gmail, which is combined with chat, video chat and calendar. In February 2010, a feature called Buzz was added to Gmail allowing short messages to be shared with "friends." This step actually moves Gmail into a sort of a social network. To share photos, however, you have to use other application, PicasaWeb, which, unlike Facebook limits the number of photos uploaded to 1GB of storage space, the additional space must be paid for. Here, users can also comment on their photos and send messages, but those comments are separate from Gmail or Gmail Chat. If the user wants to blog, it can do it of course as well. But then he must turn to another distinct system: blogger.com. There, your blogs can be followed by other people via RSS feed and similarly you can follow other blogs (again, the analogy of "friendship"). For the blogs of your friends (the analog of Facebook News Feed) you can use an excellent RSS reader Google Reader (another separate product), which works regardless of platform where your friends are blogging.. Unfortunately, this creates yet another separate group of your "friends". Google has also excellent maps, enhanced with an interesting community feature Google Latitude. With this feature, you may disclose the location of yourselves to your friends and vice versa. Adding "friends" into Google Latitude creates unfortunately again a separated “set of friends”. The popular video server YouTube is also a sort of a social network. Its users can rate videos, can comment on videos and recommend videos to others. However, this interaction is again separated from the interaction on Gmail, Google Buzz, Blogger, and PicasaWeb. YouTube users can also watch other people’s “channels” - again, an analogy of friendship, but separated again from all other sets of “friends” in Google's portfolio. And to make matters even worse, Google also owns a "full-fledged" social networking site Orkut. This network has 100 million active users, especially in India and Brazil - and certainly cannot be considered a failure. Unfortunately, friends in this network are yet another separate set of friends you have in Google.

Can this all be ever integrated?

Google thus has all the functionality which Facebook offers, and usually at a higher level, but unfortunately, these functions are spread among a number of very different applications. Google’s applications are excellent and in many cases even the best on the market. Thanks to them, Google owns also a large amount of data about their users. But these data are again held in separate applications, without the possibility to access them uniformly. Our conclusion? Google lack an uniform platform that could compete with Facebook.

In contrast, Facebook went through a very different process. First, it created its own platform, only then it built all of its functionality on top of it. Thanks to this approach Facebook created its own “small Internet,” which is well integrated on a single platform. As a result, there is only one “set of friends” on Facebook and there is just one platform all the applications run on. Facebook can thus be much more efficient in collecting information about its users. And last, but not least: it is also much easier to use.

This is a big threat to Google. Google is aware that it has no other option than to win users for its own plaftorm, Google Account .

How to get users to Google Account?

The easiest way is to gain market share by "brute force"; in other words, Google must engage in this combat all of its popular services. A similar strategy has been already used by many companies in the past: for example, Microsoft has built the success of its Office suite on the success of its Windows operating system. Google has already made the first step: unified login of all applications in its portfolio via a single Google Account.

But Google has two other irons in the fire. They are the popular Android operating system and the forthcoming Google Chrome OS. For manufacturers of mobile phones and PCs both platforms are very appealing for their zero price and high quality. And they are very attractive for users, too - along with a mobile phone or PC users get some very useful applications (such as maps, navigation, and online Google Docs office suite). But to make this system work, users must have a user name and password on the Google platform, otherwise its operating system will not even start.

The Android platform is expected to increase the number of its users by 500% in the next 3 years. Already, there is no doubt that Android aspires to the position of the main platform of mobile devices. But even if this actually happens, Google will still be far from victory. It can easily occur that although most of the devices will be using the Android operating system and Google Chrome, all of them will also carry an Facebook icon on their desktop. And this icon will be in addition present also on all other platforms that are out of Google’s control. Android's success will be then possible to compare with the success of the Internet Explorer browser. The battle was won, but unfortunately on the wrong battlefield.

Should then Google buy Facebook?

Would it be therefore a solution for Google to buy Facebook?

According to SecondMarket Inc., as of November 2010 the market value of Facebook is U.S. $ 41 billion and Facebook is the third largest web company in the United States after Google and Amazon (just before eBay). Google's market capitalization is around U.S. $ 190 billion. Acquisition would be possible, but it would not be in any way cheap for Google.

Another problem would be that Facebook functionality massively overlaps with Google’s. In the case of purchase, therefore, Google has either to abandon some of its own applications or integrate them into Facebook. If it decides to integrate it would be a very complex task – both in terms of technology and marketing.

Yet it is perhaps still a better option for Google than the prospect that in a few years, Google will compete with Facebook in a match of equals. Although Google will have better and more sophisticated applications, Facebook will be easier to use and better integrated. And the majority of users will be on its platform.

PC Sales Cycle Has Stopped. Is the Windows era over?

Windows is the crown jewel of Microsoft. It was Windows which made Microsoft one of the richest businesses in the world; thanks to Windows Microsoft was able to penetrate the market with its other desktop and server products. But Windows was even more powerful than that. Up until recently this system was able to dictate the development of the entire “PC ecosystem”. It was the Windows, which helped Microsoft to create so called “PC sales cycle”, which forced users to buy a new computer every 3 to 5 years and which forced any other player on the PC market (both from hardware and software side) to support sales of Microsoft software. This cycle worked reliably since 80’s, has been already repeated six times and up until now has been appreciated by the majority of PC makers and software producers, because it has been bringing new repeated business to all of them. But today, to the surprise of everyone - and mainly Microsoft - the PC cycle has stopped. Vista failed to push enough users to buy the new, stronger hardware. Quite to the contrary, new hardware commodity appeared on the market that ignored increased Vista requirements and – what is even worse – it gained massive success. Whom to blame? The netbooks. And of course the new emerging web applications which ignored the rules that governed the PC world up till now. No doubt about what does this all mean. Microsoft lost its market dominance. Other players don’t need him anymore. It is now only a matter of time when the Windows era is over. The new ruler will not be the operating system – the new computing landscape will be ruled by web based services, and financed by targeted advertisement. Operating system will become again a free companion of hardware, as it was before the Microsoft created its incredible marketing tool called Windows.

How to sell the same thing again

Before we explain the PC Sales Cycle, let us first look at one important business tactics: the so-called phenomenon of moral obsolescence. This is the tactics helping companies to get repeating business from existing customers even on markets, on which this would be otherwise very difficult or nearly impossible.

Every company needs to earn revenues on an ongoing basis. It seeks to have recurring revenue, because it needs to gradually finance its operations and growth. For companies selling services this requirement is met automatically. The more successful is my service, the bigger is my users’ base and the more money flows into my business. For companies which operate in the commercial software market it's however more complicated. Let us illustrate the problem by the following example.

Existing legislation gives all buyers of commercial software the right to use such software for a life-time. This represents a significant problem for software manufacturers. If I have a car, it will rod over time, the engine will stop working, so sooner or later I will have to buy a new one. The same holds in principle for any tangible goods - washing machines, refrigerators, vacuum cleaners, etc.

In contrast, for example a word processor is "eternal". It cannot rod; it has nothing what could break. It will always work as well as (or as poorly as) in the beginning. In the worst case, its users can really use it for their life-time. In that case they will unfortunately never buy any other word processor. And if all customers behave this way, the market of word processors will disappear.

This is obviously unacceptable for the software manufacturers. If they are unable to sell to existing customers, they cannot get the “low hanging fruit”, the easy revenues. This is even worse for the manufacturers that control significant market share of their particular market, because they have even smaller “free” market where they can grow. There must be a way to sell the same user the word processor again!

And indeed there is such a way – it is called moral obsolescence. The manufacturer comes up with a better product than the existing one, puts the new product on the market and offers it to its existing users. If customers consider that this new product (in our case a word processor) is really better, they will purchase it and pay for it to the manufacturer again. Up to this point this strategy is reasonable and fair to all participants.

The Problems Begin

Problems occur when the product has already undergone several such improvements, and therefore there are no features that this product would significantly lack. Users of the product are essentially satisfied. It sounds very good, but such a situation is in fact very threatening for the software manufacturer. In the worst case scenario these satisfied users will use their products (in accordance with the license) until the end of their lives, because the manufacturer is unable to offer them anything better. This would mean that these users will never pay the manufacturer again. The software manufacturer however desperately needs revenue from his existing users! He needs this revenue the more, the bigger market share he owns. The bigger market share he has, the smaller space for growth is available to him.

The solution is to create a new product even when the original product is good enough.

The manufacturer must therefore find new features at any price, because without them he cannot introduce a new version to the market. This principle can however lead only to two results.

Result 1: Growth of complexity of user interface

In the best case scenario the manufacturer adds features that are not important for most users, but still are somewhat useful. Apparently, this should cause no problem at all - why couldn’t my word processor have some built in features that I might make use sometimes in the future?

The reality is different. In fact, any new unnecessary feature (slightly) complicates control, and thus the usefulness of the whole product (again slightly) deteriorates. The more functions are added over the time, the more complex and confusing the work with the product becomes. Even the most advanced modern aircraft doesn’t have several hundred buttons and displays in its cockpit. A "modern" word processor, unfortunately, does have such a complexity. As a result, effectiveness of usage of such a word processor gets worse and worse.

Result 2: Re-making features and UI

In the worst case scenario the manufacturer is unable to find any reasonable function that is missing, and so it starts to re-invent the existing functions. This, however, has even worse implications to the users, because things suddenly work differently than the users were used to. The worst idea the manufacturer can have is to remake the user interface.
What can be a “modernization” of UI compared to? Imagine you bought a new car. With high expectations, you sit down to your new car, but at the same time you have to start looking for where the manufacturer put this time the steering wheel, or where the manufacturer has newly decided to hide brake and gas. Later, when driving the car, you are many times stuck because you suddenly could not cope with situations that were easy for you even one day ago, in your old car. And on top of that you are forced to constantly read and swallow the new marketing handbook in which "expert" explains to you that this change is actually the best for your efficiency.

In fact, users do well know how quickly and effectively they work in a familiar environment, where they do not have to think about how to find things and how to do tasks. Worst on the contrary is a work in an environment where every three years someone completely reorganizes things on our table. This means a real harm to any effectiveness, regardless of what the marketing experts claim.

Moral obsolescence

The conclusion is very simple. When a product develops to a certain stage, any further modification of it only reduces its practical usability and the efficiency of its users. Software companies are forced to do these “surplus” modifications, because they are vitally dependent on revenue from repeat sales and they have no other option how to sell the same product again. This dilemma results in a situation that can be called as "swelling of commercial software."

Two development stages of mass market products

To sum up, every commercial software (but this holds for basically every product on the mass market) develops through two stages:

1. Development phase – in this phase, innovation is natural and valuable.
2. Destruction phase – in this phase, innovation is artificial. The product is already beyond the stage when innovation makes sense. The innovation is now motivated only with the need to sell new product to the same customers. In this phase, we are facing the phenomenon of “artificial moral obsolescence”.

The specific of commercial software is that software producers are forced to develop their products beyond reasonable innovation for as long time as possible. The longer they are able to stay in the “destruction phase”, the bigger revenue they get. Every additional sales cycle counts in the company revenue. Companies in, say, consumer electronics market can do “destructive” innovation, too (see e.g., some models of Nokia phones), but they are not so desperate because they have also other options – to create a really brand new innovative product and thus return into the “development” stage (this is not possible in the, say, word processor market). In addition, everyone in the consumer electronics market knows that new innovative products (e.g., iPhone) can earn the company much more money than even the smartest and longest “destructive” innovation.

Swelling of operating system

This problem of “software swelling” is built-in into any commercial software. Operating system is no exception here. Also operating system must bring repeated revenue to its manufacturer; also this product is after some period of innovation in fact good enough and reasonably usable. So which are the specific consequences of “software swelling” for the operating system?

The operating system originally served as a simple tool to enable comfortable control of the hardware. Openly speaking, it should have stayed in this area. In particular, its role should be to provide a relatively stable platform for other applications and abstract the application software from the diversity of hardware (through the HAL - Hardware Abstraction Layer). Everything else should be left for the application software. (Naturally, Google Chrome goes right into this area of a simple lightweight OS – it doesn’t reinvent the wheel.)

Well, this is not how Windows looks like these days. As a result of the need to sell Windows to existing customers again and again, Windows gradually developed into a complex bulky system that includes more and more applications and services on top of a relatively complex user interface. Vista includes a browser, media player, DRM system, indexing system, etc. It is of course only the decision of operating system manufacturer what he would like to add to its operating system. Microsoft in particular, quite logically, adds components that support its other applications and services.

Emergence of the PC sales cycle

To be fair to Microsoft, we have to say that the "swelling" is an essential feature that is built into any commercial software, Microsoft cannot do anything too much about this. Microsoft depends on the sale of the operating system with a large part of its income. It does not have really any other option than to publish every three (if possible, preferred) to five years a new, "improved" system, to milk the market for some additional money. In the recent years, however, it became very difficult to find "improvements" that were still not built-in in the OS functionality (and which would not break the backwards compatibility). This problem became particularly strong during Vista development. Many bloggers and authors commented that existing users are already satisfied with Windows XP and don’t see any innovation opportunity here (and thus any compelling reason to migrate to the new system). Hesitant adoption of Vista by the market confirms reasonability of these opinions.

The influencer

The operating system has a unique position in the entire ecosystem of commercial software: every commercial application depends on it, and if the position of operating system is strong, even PC manufacturers have to closely watch its development and adjust their hardware. Any change in the operating system has therefore implications for the entire computer market.

Microsoft was able to use this dependence of the market with a real mastership – it created in fact a strong dependency of all application software manufacturers and PC makers on the success of its operating systems, and hence on its own success. It was a sophisticated mechanism, called "PC sales cycle."

PC Sales cycle

PC sales cycle is 3 to 5 year long cycle during which the PC users are forced again and again to buy new hardware, new operating system and new application software. The cycle begins with the creation of a new operating system, which has higher hardware requirements than the previous one, and therefore it is not running (or it is running only under very limiting restrictions) on the existing hardware. Hardware manufacturers are however already prepared to resolve this “problem of the users” and are coming with their offer of readily prepared new hardware that is certified right for this new system. Also manufacturers of application software do not hesitate to use this opportunity and bring promptly new versions of their products, which are able to make better use of the new hardware and new features of the operating system.

The main role in the sales cycle is played by two companies - Microsoft and Intel. For this reason, people sometimes speak about the Wintel (Windows + Intel) alliance. Of course, no formal alliance ever existed, however the better this system worked! Every new version of Windows operating system forced users to buy a new, more powerful hardware, and then the new software which made a better use of this hardware.

Even until today companies calculate the "moral" life of corporate notebooks and PCs as 3 to 4 years. They take it as a fact and incorporate it into their IT budgets. No one asks questions like, for example, why the computer must be disposed of after only 3-4 years of usage, while a TV set (a similarly complex product) would keep operating without major problems for 15 to 20 years.

Corporations also automatically allocate in their budgets money to purchase new versions of the operating system. Again, no question asked. On the monopoly market, you don’t have many choices, do you?

Microsoft however helps its customers to make such migration decisions much easier. Promptly, without unnecessary delays it notifies its customers that it is going to cease support for previous versions of its operating system, so everyone who decides not to migrate should understand he will not be supported.

End of the PC sales cycle

Vista was no exception to this proven strategy and shortly after Windows Vista launched, Microsoft announced that it would "not support Windows XP too much beyond 2008." This plan however never materialized. Around the time when Microsoft wanted to stop selling Windows XP, something unexpected occurred, that prevented Microsoft to make this step.

Lightweight devices called “netbooks” entered the market and started to gain popularity. The problem was that netbooks were unable to run Vista. In full compliance with the PC sales cycle Vista had to be more hardware hungry than XP. Unfortunately, netbooks are lightweight devices and their priority is portability, not performance. This is also what makes them appealing to more and more people.

Netbooks – the breach of the plan

Netbooks are a clear violation of the original plan: first time in the PC history, Microsoft was dislocated from the hands-on control of the sales cycle. Vista has inevitably higher hardware requirements than XP, to allow manufacturers to make money on their new hardware. Netbooks are outside of the will of Microsoft. This means very likely the end of the Wintel alliance. Its end will be as informal as was its beginning.

From our point of view it is rather surprising how long the PC sales cycle was running. It has repeated in total six times. The explanation is however easy: all participants on the PC market were happy, because the cycle yielded to the PC industry much more money than if the industry was left to the free market competition. In the situation when one major player was "conducting" the PC market, everyone was able to sell every 3 to 4 years to the same customers again, and therefore everyone benefited from new versions of Windows (Microsoft made the other PC players dependant on its own success - see this IDC analysis [PDF, 147 KB] of December 2006 - for every dollar earned by Microsoft from the sale of Vista the other companies in the PC ecosystem will make $ 18).

Maneuvering space of Microsoft

Microsoft had to respond to the success of netbooks. The company decided to keep selling Windows XP and accelerated to the maximum extent its work on Windows 7, which will again run on netbooks.

Here we should stop for a minute. This is a real landmark moment. For the first time since its dominance on the PC market, Microsoft has again to adapt to the market developments. This is the first version of Windows ever that is less hardware hungry than the previous one. After a long time it is not Microsoft who determines the evolution of the market. This puts Microsoft into a new, unfamiliar position.

In addition, his maneuvering options are very limited.

Microsoft Limitations

Microsoft, for example, cannot afford itself to develop a lightweight system with limited functionality. Microsoft must convince users that the OEM price of about $ 10 to $ 50 for one netbook brings visible functionality. If the operating system was light, almost invisible (however effective), it could hardly be distinguished from other systems, which are also almost invisible and also work, but are free.

Especially in the netbook market Microsoft will have a very difficult situation. When the price of these devices come down to $ 100 to $ 200, every dollar spent for operating system starts to be really visible on this very competitive market.

Microsoft, in addition, can not waive its backward compatibility. The main competitive advantage of Windows is that users can continue to use all their software, which they are used to and which they previously purchased. This is the main reason that keeps the users loyal to Windows. But it is also a brake on further development. Microsoft cannot thus go to a fundamentally different concept that would address issues such as viruses.

When will Windows die?

In summary, the position of Windows 7 will be very difficult, specifically in the netbooks segment. Unlike Google’s Chrome or Intel’s Moblin, Windows will start more slowly, due to backward compatibility they will allow to run not only all current programs, but also all existing "malware" and viruses. They will also mean a significant price increase on otherwise cheap netbooks. Any growth of netbooks popularity further undermines Microsoft's position in its key operating systems business.

And what will be the position of Microsoft in the traditional desktop? I have no doubt that it will remain very good. The question however is, how long will this market survive. Example of netbooks teaches us that users are already aware that there are alternative approaches how to do things. The fact that the sales cycle ended is very significant warning that things are not going to be as they were only few years ago.

The question therefore is as follows: how long it will take before the mainstream functionality moves from the desktop to the web. Once users start to look for functionality on the Internet, they will have no more the reason to look for it, and therefore to pay for it, on the desktop. The battle for the customer will then finally move from the desktop to the Internet.

At the same time this will end the era of commercial software, as well as the business tactics of artificial moral obsolescence. I am sure nobody will miss this particular feature of software.

The breaking news that didn’t make it to the headlines – End of the PC era

Last day of October, one small article appeared on the cNet News: Office Live almost out of the gate. I am afraid that mainstream media didn’t quite realize its real significance and implications.

A Forced Move

Anticipating Google's moves in the area of web based applications (Google Apps for Your Domain, but also and mainly Google Docs & Spreadsheets), Microsoft, the world's biggest software maker, has responded by introducing Microsoft Office Live -Web-based software for “small business and consumers”. By this move, Microsoft is starting to fight against its own core cash-cow products. And this is really unique in its history.

Cannibalizing its own cash-cow

At first, Office Live is cannibalizing its Exchange Server right now. At second, the longer-term consequences of this step will make the entire MS Office, which is the most important cash generating product for Microsoft, obsolete. Although Microsoft is trying to underplay its move and underlines that Microsoft Office Live is not intended as replacement of MS Office, but as an additional tool for “small business and consumers”, the reality will soon show up.

The Purpose of Documents

Let us forget marketing for now and be blindly honest in describing why documents exist: every document is created to be processed (read, edited, reviewed, approved...) by other people. That’s it. There is no one simple document which was created just with the purpose to be stored somewhere on the PC.

But only now the second part of our observation comes: there is currently no better platform to accomplish this purpose than the web. Web based applications are inherently better suited for information exchange than any PC-based, or PC-centric solution. Web based applications are not better for formatting documents or printing them, but they don’t need to be. They don’t need to compete with desktop apps in the same arena. Instead, they can use their real competitive advantage and realize the real purpose, why documents were created. They can help people to increase their productivity and effectiveness by allowing them an easier and more straightforward communication.

The Funny World of Today

It will not take long and today’s world and our present-day document practices will sound very funny. Imagine that we need to tell somebody important information today. At first, we write it on our computer, then we print it, then we insert it into an envelope and send it by mail, fax, or messenger, then the recipient reads it and takes notes to his own computer. Is this really the best way how computers should be utilized?

The Funny World of Email and Millions of Copies

OK, you say, “go on, we have the email today!” But that is just slightly better. Document must be saved to local disc first, then send as an attachment to the recipient, then saved by the recipient to his local disk, then the recipient makes his comments and remarks and saves the modified document on his computer (if he is smart, he chooses a different name), then he sends the revised file to a third person to his revision or approval, the third person sends it back to all of us... Well, at the end of the day we end up having tens of copies of different versions of the same file across several dozens computers of our firm, including several slightly differing copies on our own PC. Yes, I am aware of the “Version” function of today’s word processors. But for good reasons (we all are aware of) it is not a good practice to delete the original file when we receive a newer version...

End of the PC era

The conclusion is simple and straightforward. The PC paradigm is not a suitable platform for collaboration of people. At the onset of the mainstream mass internet, the document storage and processing paradigm should be revised from the ground up.

Don’t be confused by the fact that Office Live is marketed only to small and medium companies. The truth is that even big corporations do need to work with documents effectively.